Microsoft Corp. will pay $19.7 billion to acquire Nuance Communications Inc., a company that uses artificial intelligence to help physicians create medical notes faster.

The hefty price tag of the transaction, which Microsoft announced today, indicates the massive market presence Nuance maintains in the healthcare sector. The company’s AI software is deployed at more than three quarters of U.S. hospitals. Its user base includes over 55% of U.S. physicians and about 75% of radiologists.

The deal’s price tag also reflects the sizable revenue opportunities Microsoft expects to unlock through its investment. By the technology giant’s estimates, buying Nuance will more than double its total addressable market in the healthcare provider segment to nearly $500 billion.

“Nuance not only brings an attractive set of healthcare customers in AI – a huge bid for Microsoft – but also deep domain expertise as well,” said Nicholas McQuire, chief of enterprise research at CCS Insight Ltd. “This has been the missing ingredient for Microsoft until now.”

Nuance, based in Burlington, Massachusetts, provides cloud-based AI software that allows physicians to take medical notes with voice dictation. The company’s machine learning models create a transcript can be easily reviewed by the physician later, as well as added to a hospital’s electronic health record system. Potential data errors are caught automatically.

Nuance provides its AI technology in multiple editions. One of the company’s services is designed for taking notes during patient visits, while another is used by radiologists to write down medical assessments.

“Nuance delivers Microsoft a more mature set of AI solutions in areas such as speech recognition, document processing, fraud detection and imagine recognition,” McQuire said. “Ultimately, these will prove key to differentiating Azure to healthcare customers against its largely horizontal competitors.”

With the deal, Microsoft is gaining products that play an important role in the delivery of medical care across numerous healthcare institutions. Nuance says that Dragon Ambient eXperience, its product for taking notes during patient visits, saves physicians an average of six minutes per visit. For primary care patients, the company claims that the product reduces wait times by an average of nine minutes.

“AI is technology’s most important priority, and healthcare is its most urgent application,” Microsoft Chief Executive Officer Satya Nadella said in a statement today. “Together, with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere.”

Another item that will likely be on the companies’ agenda: closer integration between Nuance software and Microsoft Corp.’s Azure public cloud. Nuance already uses the platform to power its products. Following the deal, the companies’ engineering groups will have an opportunity to work together to explore new ways of using Azure services to make physicians more productive.

The deal underscores just how big a focus the healthcare sector has become for the major cloud providers. Microsoft’s major competitors have expanded their healthcare portfolios as well in recent months. Amazon Web Services Inc. last year introduced Amazon HealthLake, for processing life sciences data, while Google Cloud offers vertical-specific products such as Healthcare API.

Microsoft can apply Nuance’s technology in areas outside healthcare as well. Nuance has customers in other industries, such as retail and finance, where its AI software is used for tasks that range from creating regulatory compliance reports to developing AI customer support assistants. Apple Inc.’s Siri was originally built on Nuance technology.

The $19.7 billion Microsoft has agreed to pay for Nuance is 23% higher than its market capitalization when trading closed Friday. The deal is the second-largest in Microsoft’s history, after its $26.2 billion purchase of LinkedIn in 2016.

The companies expect the transaction to close by the end of the calendar year.

Image: Microsoft